Apollo Tyres (SELL): Good quarter but challenges remain - AMBIT

Apollo's 1QFY14 results were clearly ahead of our expectations due to a benign rubber price environment. Given the increase in domestic rubber prices in July/August (now hovering around Rs195/kg vs average of Rs168/kg in 1QFY14) coupled with INR depreciation (which would raise the landed price of imported rubber), we believe material costs could inch up in 2QFY14. This would adversely impact margins unless the company undertakes price increases, as indicated in the conference call. Cooper Tire is likely to announce its results today. If the acquisition goes through, Cooper Tire would be contributing close to two-thirds of the combined entity's cash flows, and thus we will pay close attention to Cooper Tire's financial performance. However, we remain concerned of the Cooper Tire acquisition, because we believe that the acquisition is an over-leveraged and aggressive one. We retain our SELL stance on the stock.

Source : Equity Bulls

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